Do residential property assessed clean energy (PACE) financing programs affect local house price growth?

Abstract

The objective of residential Property Assessed Clean Energy (PACE) programs is to increase environmentally friendly home renovations, like solar panel installations, for private residences by making financing more readily available. Local governments use municipal bond proceeds to finance PACE loans that are secured via a property tax lien on the affected residence and repaid through temporarily higher property taxes. Critics allege that these programs can stymy housing markets through lien-related risks that discourage buyers and lenders. Using data from Florida, we find support for these claims. Our analysis suggests that PACE program rollouts predict fewer home sales and weaker house price appreciation. We investigate the channel for these results and observe that mortgage lenders are less likely to approve loan applications in areas after local PACE programs are introduced. This even occurs for homes without PACE liens, which discourages housing market liquidity and drives down housing market returns. Our results emphasize the need for thoughtful policy design and implementation to avoid unintended, negative consequences of well-intentioned sustainability programs.